Liquidity Group reaches unicorn status with a new $40 million investment from Japan’s M
Israeli-founded fintech company Liquidity Group has raised an additional $40 million from Japanese banking giant MUFG Bank at a value of $1.4 billion.
Founded in 2018, Tel Aviv-based Liquidity is a non-recourse, non-dilutive, unlimited unsecured growth capital provider. The company was founded by Ron Daniel, who also serves as CEO. Meitav Dash, MUFG and Spark are all partners in the company.
Liquidity announced last May that it had signed an agreement to create a massive $2 billion investment fund in partnership with MUFG Bank and US venture capital firm Spark Capital. MUFG invested $1.25 billion of the original sum and then added another $250 million last October.
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Ron Daniel.
(Photo: Geva Talmor)
The liquidity value rose by 75% in the latest round, and the company was valued at $800 million when US giant Apollo invested in it last April.
The latest funding brings Liquidity’s equity fundraising total to $120 million. MUFG owns 12.5% of Liquidity’s shares (fully diluted). The bank will be able to sell the purchased shares back to Liquidity if the company is not listed on the stock exchange within an agreed time, which is assumed to be two years. Liquidity aims for an IPO on Nasdaq or the Tokyo Stock Exchange at the end of 2024.
The Meitav investment house, which invested in liquidity in 2018 when it was founded at a valuation of $1 million, will see its stake fall to 33.3%, but will remain the largest shareholder in the company. Meitav will register a profit of several tens of millions of shekels from the latest transaction. The American venture capital fund Spark owns 18% of the company’s shares. CEO Ron Daniel owns slightly less than 10% of the shares.
Liquidity is a credit-oriented fintech platform that invests, syndicates and automates growth and mid-market loans for companies around the world, providing capital mainly to early-stage technology companies.
According to Daniel, it is able to predict the business situation of the borrowing company with unprecedented accuracy. It provides loans through six funds it manages (five debt funds and one equity fund). It also raises funds for these funds (a total of $2.5 billion to date and Daniel aims for the amount to reach around $7 billion), including from shareholders, such as MUFG and Apollo.
Liquidity’s headquarters are in Israel, but it has offices in other countries and last November it even launched a development center in Abu Dhabi, with the help of the local investment center.
According to Daniel, the development center in Abu Dhabi “is an amazing platform. The employees pay 0% income tax and they allow us to bring talent from anywhere in the world. In Israel, it is almost impossible to bring talent from outside Israel. In the Emirates, I get a work permit for any programmer I want within two weeks. We currently have 40 employees in Abu Dhabi and I plan to reach 100 employees.”
The company also has a development center in Israel with 70 programmers.
Why not have all R&D activity in Israel?
“The company is growing at a rate of 500% per year. I cannot grow on such a scale only in Israel, and the competition for every programmer here is too great.”
Even now the competition is too great? After all, there have been quite a few waves of dismissals.
“You are talking about spoiled workers who charge NIS 70,000 a month (about $19,700). There is no reason for me to hire such programmers in Israel when in the Emirates I can pay them NIS 30,000 ($8,400).”
Do you perceive Liquidity as an Israeli company?
“We are a proud Israeli company. And this is not related to the political situation which is not helping.”
How does the political situation and the coup affect you?
“I feel the situation in many ways. Many of our Israeli employees want to move to our offices around the world. In the past I had to beg them to move, and in the last month I received 20 requests from employees who want to move. The dollar exchange rate is also a cause for concern. Today, Israeli companies find it difficult to raise money through debt or equity in light of the situation, and this is regardless of the fact that the market is already difficult.”
Don’t you have problems?
“We have no problems. We are a very different company. We are the ones who lend the money and invest in ourselves. When there are liquidity difficulties in the market, we have a competitive advantage, because we have high liquidity. I can choose who I want to give credit to Thanks to our technology, I know how to lend to companies based on activity value, and not on asset value, which is the method banks use.
“Our systems predict the value of the business activity two years ahead and with 94% accuracy. That’s why we’ve almost never had a default in the company. Maybe there was an incident at the beginning and we were able to recover from it.”
Daniel says Liquidity’s current credit portfolio is $1.9 billion and growing. According to Daniel, 20% of the credit is given to Israeli companies.
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Why would high-tech companies prefer to work with you over working with the banks?
“Our interest rates are not higher than the market, but our technology allows us to give an answer within 24 hours. If the answer is positive, you will immediately receive a letter of intent to sign. If the answer is negative, you will receive a detailed report explaining the reasons for the refusal and what you must do to get a positive answer It takes 3-6 months before the banks give an answer, and they usually finance the current business with a relatively small investment, so in practice the bank is not taking a particularly big risk.”
“I had a company that grew rapidly and collapsed. It developed management systems for small companies. It raised $20 million and needed another $30 million, but I could not raise it. I closed the company and returned the money to the investors, and I started to think about how I could solve this problem. The entrepreneur Yaron Sela, Oren Maymon, who was then a senior executive at Applied Materials, and I joined forces to find a solution. We dedicated three years to it before we succeeded. One morning in July 2017 I woke up with a solution. At noon I presented it to Oren and we have been developing it ever since. And we were very lucky, because Eli Barkat and Avner Stepak, who control Meitav, realized very quickly what the potential was. stayed and joined us from the start.”
Do you have a good relationship with Meitav? How are they as partners?
“They made the deal of a lifetime here. They invested in the company at $1 million and today it’s worth $1.4 billion. And they deserve it. They were the first to spot the potential. I approached them because I really like it. Eli Barkat and Eran Barkat. They are the best partners in the world. They taught me a lot about the financial world. We argue, but they always agreed to follow our path.”
It is interesting because an investment house like Meitav is not exactly your classic investor. This seems more appropriate for a VC fund.
“Venture capital funds are entities that operate in a structured conflict of interest with the founders and 99% of the time they hide it. An entrepreneur wants to build a real company, while the funds only need one big success in a portfolio of 10-20 companies. That’s why they lose interest for companies very quickly.”
Spark is a venture capital fund.
“True. I knew I also needed such an investor. And Spark is different in this landscape. Spark’s DNA is not to push companies to unrealistic goals and not to encourage companies to present the story as they see fit instead of the truth. The people that teach entrepreneurs to lie are the funds. There is a saying that statistics don’t lie but liars use statistics all the time. The funds brought the lie to this market.
How do you see the current crisis in high technology?
“This crisis brings the market back to its senses. Salary levels reached illogical realms. Programmers with 3-4 years of experience were not ashamed to ask for a salary of 70-80 thousand NIS a month, and even then they did not show loyalty to the company and jumped from place to place. The companies in turn increased their workforce to look big, but they didn’t need to increase their workforce since there was no corresponding increase in their businesses. We have grown by 40% in our workforce. We have 110 employees in Israel and 220 employees worldwide. We have not laid off employees, on the contrary we are recruiting. In line with the pace of growth in the company.”
How much longer will the high-tech crisis last?
“I don’t think it will last much longer. Until April-May we will start to see an upswing in the market in the form of investments in large companies. Prices are already close to the bottom. There is a lot of money and funds needed to make investments. Our analysis shows that the technology market will start to climb around April.”
